HTC stock soars, but analysts cautious on prospects

By Helen Ku / Staff reporter

HTC Corp (宏達電) shares rose by their daily 7 percent limit yesterday, bucking the downward trend on the main bourse, after the smartphone maker announced on Sunday it had settled all outstanding patent lawsuits with Apple Inc and signed a 10-year license agreement.

The settlement with Apple and the upcoming launches of new products in the US are likely to help HTC regain its sales momentum in the North American market next year, although challenges remain, analysts said.

Jeff Pu (蒲得宇), an equity research analyst at Taipei-based Fubon Securities (富邦證券), said the reconciliation with Apple was good for HTC’s sales in the US, where it had trouble launching new smartphone models as the US International Trade Commission blocked imports because of the lawsuits.

“HTC can now accelerate its product launch speed in the US and focus more on innovation to stabilize its smartphone market share in North America,” Pu said by telephone.

“Although it only has a 4 percent share of the global market, HTC holds competitive advantages in developing smartphones models running on Google Inc’s Android as well as Microsoft Corp’s Windows 8 operating systems, providing customers with a flexible and cross-platform user experience,” he added.

The analyst said that based on his latest supply-chain checks, HTC is expected to launch 10 to 20 customized smartphone models worldwide next year.

Two of these new models will be equipped with Nvidia Corp’s Tegra 4 chips and Qualcomm Inc’s APQ 8064 quad-core processors, he said, adding that they will be exhibited in next year’s GSMA Mobile World Congress in Barcelona, Spain.

“We believe the new smartphone models will help HTC maintain its momentum until the third quarter of next year,” he added.

Meanwhile, Minister of Economic Affairs Shih Yen-shiang (施顏祥) told the legislature’s Economics Committee that he welcomed the news about HTC, expecting the settlement to not only boost the firm’s smartphone shipments, but also help increase the nation’s overall exports.

HTC closed at NT$241.50 in Taipei trading yesterday, up 6.86 percent from Friday’s close of NT$226. The stock has plunged 51.41 percent so far this year, compared with the TAIEX’s 2.77 percent rise.

Horizon Securities (宏遠證券) analyst Cheng Kai-ming (鄭開明) said HTC’s revenue for this month might beat expectations, adding that the company might achieve or even surpass its sales target for this quarter of NT$60 billion.

However, Cheng and some analysts were still downbeat on HTC’s profitability, saying the company has to solve other issues other than the lawsuits with Apple, if it hopes to raise its market share.

“What HTC needs to focus now is to solve fundamental problems of how to differentiate its products with others instead of rolling out new products at a faster pace,” Cheng said by phone.

Daniel Chang (張博淇), an analyst at Macquarie Capital Securities Ltd’s Taiwan branch, said in a note that HTC still suffers from weak branding, rising costs due to competition and falling customer loyalty, especially in the US and Europe.

“HTC needs to resolve these issues in those markets quickly. Otherwise, as smartphone penetration in developed market matures, the profit pie will shrink rapidly as bargaining power shifts to carriers,” Chang wrote.

Macquarie maintained its “underperform” rating and target price of NT$150 for HTC, while Fubon has a “buy” rating with a target price of NT$270.